What's the Difference Between a Wage and a Salary?

The terms ‘salary’ and ‘wages’ are often used interchangeably. The fact is, these two terms hold different meanings.

For instance, what is ‘salary’? It’s a fixed amount payable at regular intervals, it can be weekly or monthly payments straight to an employee’s bank account.

Wages are hourly or daily payments for work done during the working day.

The main difference between salary and hourly wage is that salaries are a fixed upon payment agreed to by both the employer and employee. Wages, on the other hand, may vary depending on hours worked and performance.

Benefits of salaried pay

Consistency: Your employees are guaranteed a certain amount every week or month excluding bonuses. This makes financial planning easier as they’d know how much is coming in and going out.

Additional perks: Salaried employees are entitled to a number of paid days off every year. The number of days would be pre-agreed with your employer. It is also possible to agree on flexible working hours. So employees can come in to work an hour or two earlier to leave an hour or two later.

Higher wages: Salary workers generally have more responsibilities compared to their waged counterpart. Salaried workers might have to work more than the standard work-hour week to catch up with deadlines. Compensation for these responsibilities is reflected in their salary.

Disadvantages of salaried pay

Overtime: One of the main disadvantages of salaried pay is working overtime. Although salaried employees are entitled to overtime, tracking overtime can be a bit of a challenge. An hourly worker would work overtime and simply charges for the hours they worked.

Pay cuts: Companies going through tough financial periods slash expenses by cutting pay. Although waged employees are more likely to get their hours cut, it wouldn’t affect their hourly rate as they only get paid for the hours they work. While salary workers might need to work more hours with no extra pay.

Public holiday pay:Like overtime pay, waged workers are often paid more to work on public holidays like Christmas or Easter. Depending on the nature of your business and contract, salaried workers might have to work over holiday periods without extra pay.

Benefits of waged pay

Payment for hours: An advantage of an hourly wage is that employees get paid for the hours they actually work. This means that if a worker works for eight hours a day they get paid for the eight hours. If you ask an employee to work overtime, they’ll also get paid for that as well.

No contract: Waged employers are not bound by contracts. If they find somewhere that offers more money for working the same hours they can change employment. Because they are not bound by contract, waged employees cannot get charged against any legal obligations like leaving before working the agreed upon period.

Less responsibility: Employees working on a salaried basis could be liable if anything goes wrong within the company. Waged workers have less responsibility for the growth of the company.

Immediate pay: Unless otherwise stated, waged workers would mostly get paid daily or weekly as their pay is directly related to the number of hours that they’ve worked. While salaried employees wait a month to get their paycheck.

Disadvantages of waged pay

Working hours: Waged workers get paid according to the hours they have worked. This means they would have to work extra hours to earn any extra pay.

Hours cut: If your company is going through financial troubles and you need to cut down on expenses, in most cases employee hours are the first to go, which means a smaller paycheck. But it also means the employee will still get paid for however many hours they work.

Benefits: Waged employees don’t have a safety net. A waged employee would lose out on wages if they are absent from work even for medical reasons. In most cases, they wouldn’t get medical insurance or contributions to their pension, either.

Expert support

We offer professional services advice to employers. Our pay & benefit specialists have over 40 years of expertise in the area.

No matter the size of your organisation, we can help you with any aspect of pay and benefit management, to help your company and staff develop to the best of their abilities.

About the Author

Clare Parkinson has over 20 years’ experience in the Croner Reward business. As Business Manager, Clare leads a team of Reward Consultants who specialise in the delivery of pay and grading related advice, including tailored pay benchmarking and gender pay reports.

Over the years, Clare has contributed to various industry publications on topics such as gender pay, executive remuneration and market pay trends.